The week started out hot in the markets. Everything was in the green, everyone started believing things were finally turning around. Unfortunately, that only lasted for about a day and a half. Reality quickly set in when Job numbers for September were released and showed the Fed had a long way to go in fighting inflation (more on this below).
MARKET RETURNS:
Tale of the Tape
Economy
My Way or No Way
The Fed is getting exactly what it wants for the economy as a whole. As their “War on Inflation” continues, we are beginning to see more of its effects on the general economy. Last week we spoke about how interest rates are making everything more expensive and could lead to a recession. Well, we are beginning to see the entry part of the cycle we spoke about.
We just saw the most significant drop in Job Openings since the pandemic. According to the JOLTS (Job Openings and Labor Turnover) report, there are now 1 million fewer job openings compared to last month. It went from 11 million down to 10 million. It is still a 2 to 1 ratio of job openings to unemployed people. But it shows that the pressure from the Fed is taking effect.
Also, the layoff and hiring freeze train continues. Last week, Meta aka Facebook announced a hiring freeze and the need to cut costs. This week, Amazon announced a hiring freeze for the retail portion of its business. Then Facebook came out and announced the closing of its New York office to cut costs. Also a recent survey from KPMG of 400 CEOs of US companies, more than half expect to have layoffs in the next 6 months.
Good News For Normies = Bad news for Asset Owners
All that was before Friday when the September jobs report was released. It showed unemployment fell to 3.5% from 3.7% and 263,000 jobs were added. To me, you, and every normal person, this is awesome news. People are getting jobs and are able to make a living for themselves. Wages increased 0.3% month over month. WONDERFUL!!
Well, not to the Fed. They want to see some pain in the economy to show demand is falling. One of the key parts of that as I referenced above is increasing unemployment and falling wages. Neither of these seems to be happening. This means the Fed will continue on its path of increasing interest rates. On Thursday Federal Reserve Governor Lisa Cook said, "In our current economy, with a very strong labor market and inflation far above our goal, I believe a risk-management approach requires a strong focus on taming inflation."
Aka more rate hikes are coming.
My Takeaway: As the Fed continues down this path of destruction of demand, things are going to keep getting worse. My advice remains the same, I don't know if we are heading into a recession but it certainly looks like we are. I will advise everyone to get their emergency fund in place. This is about to be a painful time period we are heading into. Take caution with your expenditures, I know it's the holiday season and we wanna show love to everyone. Maybe be more judicious than in standard years and look out for yourself instead.
In other news, Elon Musk is still Elon Musk. He has changed his mind once again and agreed to buy Twitter. This dude is just something special.
Stats of the Week
The Average monthly payment on a new car loan
Another sign of how unaffordable the world is becoming as the Fed raises interest rates
With prices still, sky-high from the pandemic and inventory still not fully recovered. It is costing way more to buy a new or used car
The average cost of a new car is $41,347 🤯
OPEC, the Oil Cartel, announced they will be cutting oil production by 2 million barrels. Causing oil to rally from $81/barrel to $88/barrel
Basically, this was the Cartel giving the middle finger to the entire world.
Why are they doing this? Very Simple: Money
They really liked when oil was $120/barrel but now that it has dropped to $80/barrel they don't like it as much.
The irony is previously they would have killed for $80/barrel
Fine by the SEC on Kim Kardashian (hopefully the only time I ever mention this name in this newsletter) for misleading investors
In 2021, when crypto was going gangbusters your favorite internet celebrity tweeted out and shared on her IG story various cryptocurrencies that she was "buying" or that were told to her by her "friends"
In reality, she had been paid more than $250,000 to tweet and share about those poop coins
Of course A BUNCH of
investorsregular people lost money and well they want bloodThe SEC saw all the carnage and has decided to step in and use Kim K as an example for every other celebrity who did the same thing last year
She was not the only celeb to share and endorse some poop crypto coin
As always just because someone is famous is not a good enough reason to listen to their advice.
Looking Ahead
Earnings Season Begin
This week, Public companies wrap up their final expenses for the third quarter of 2022 and begin to open up their books for investors to get a good idea of how they are doing. As always the first companies to open their books are Banks.
We get JPMorgan Chase, Morgan Stanley, BlackRock, and Citigroup reporting this week. Next week, Bank of America and Goldman Sachs report.
Ordinarily, you would expect that with interest rates going up. Banks, who make a substantial amount of their profits from the loans they generate, would be swimming in money right now as the Fed continues to raise rates. Well, your expectations are wrong. According to analysts, they are projecting the financial sector to report earnings to fall by 13.5% on average. Why?
Because most of these massive banks, also make a ton of money from the investment arm of their business. As we can see from the chart above, it has not been a very good year for anything investing-related. IPOs (Initial Public Offerings) and M&As (Mergers and Acquisitions) which were massive money makers for Banks in 2021 have completely dried up. Which is hitting banks’ pocketbooks very hard.
Inflation
Probably the most consequential inflation data report will be released on Thursday. The reason I say this is because this is the last piece of inflation information the Fed will get before the Fed meets at their next FOMC meeting in November. Where they will decide what they will do with interest rates. If this number comes in higher than they like or shows that inflation is still rising. Expect more of the same from the Fed.
Unfortunately, the expectations are for CPI to increase month over month by 0.2%.
Sports I Care About Update
After being absolutely embarrassed by Man City last week. Man U actually played pretty well against Everton. Then again it is Everton. But a win is a win and at this point, I cannot complain. The game started out poorly but at least they got away with this one.
Thank you for Rocking With ME
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Remember GENEROSITY > greed
God bless Each and every one of y’all
✌🏾
Extras
Google just announced the new Pixel 7 Pro and this is gonna be my new phone before the year ends. They also announced a Pixel Watch as well. The details of both are kinda pointless to me. The Pixel Phones are like iPhones for me every 3-4 years I will buy the newest one. This will keep happening until I meet someone who forces me to switch to the iPhone, and by someone, I mean Future Wifey. Cause I am assuming she is more than likely going to be an iPhone person 😔
Ray Dalio, one of the world's greatest investors, is giving up control of his Hedge Fund, Bridgewater after 50 years. He built it to be the largest hedge fund in the world with assets under management, $150 Billion.
Ray Dalio was one of the first investors that I learned how to invest from. Although I never invested in his way, he is much more macro focused and that is just too hard for my weak mind. I liked his principles of dealing with life and career. His book, Principles, is a long and hard read so I got the picture version instead. It gets the same point across
The EU has finally had enough of Apple's lightning port. After threatening Apple to change its charging port to be in line with the rest of the world or face dire consequences. Apple completely ignored and released the iPhone 14 with lightning again. The EU said enough and pushed legislation that required all mobile phones, tablets, cameras, and other electronic devices to use USB-C or newer ports. No more proprietary ports. Although the law does not name Apple, it is literally aimed at Apple as the only major manufacturer that has refused to adopt the standard port of the new age.
All I want to see is how Apple spins this with the release of the iPhone 15. Making it a "WE decided to use USB-C because we just want the best for our customers. When in reality it’s more, "EFF THE EU for cutting our profits on all the cables we sell."